Should I salary sacrifice superannuation?

The average Australian needs to grow their superannuation balance to $640,000 for a couple and $545,000 for a single person for a comfortable retirement, according to industry experts – a daunting amount in most people’s books.

This goal is made even more unreachable due to the fact that many Australians will never consider contributing more than the mandatory 9.5 per cent their employer puts into their fund.

This is where salary sacrificing comes in to play. By making the decision to contribute some of your pre-tax income into your superannuation you can increase the amount of money in your fund at retirement age and generally, it can be a tax-effective strategy if you earn over $37,000 per year. 

What is salary sacrificing?

Salary sacrificing, which is also called salary packaging, is a term that is not specific to superannuation contributions. It refers to an agreement made with your employer to put some of your pre-tax salary towards certain benefits which reduces your taxable income. The options available will vary from company to company so ask your employer if you require clarification on what you can salary sacrifice.

Salary sacrificing into your superannuation fund can be an attractive move because contributions are generally taxed at 15 per cent.

Related links

• Lost super costing Australian’s thousands
• What to do if your employer isn’t paying super contributions
• Switching super: who would you turn to for advice? 

How much more money will I have?

As with every financial calculation the exact monetary benefit of salary sacrificing superannuation will vary from person to person based on individual circumstances. To get a rough idea of how significant the impact can be however, let’s look at an example of a 30 year old single female employee earning $50,000 before tax who doesn’t currently have much in super.

If this employee was to make a $100 monthly salary sacrifice contribution to her super the Association of Superannuation Funds of Australia (ASFA) estimates she will be able to live a comfortable retirement from age 65 to 86 combining her income from super and age pension entitlements.

Without these monthly salary sacrifice contributions she will be almost $65,000 worse off at retirement and her super will run out at age 80.  Given she is expected to live to around age 85, this could be a problem.

Of course the younger you start or the more you can afford, the more significant the results are but even in this scenario it is obvious what a drastic difference is made to a person’s super balance with only $1,200 in extra contributions a year.

It’s important to remember that everyone’s financial circumstances are different so it’s a good idea to seek financial advice. ASIC’s Money Smart website also has a Super Contributions Optimiser which can help you work out your options as there are many other factors to consider.

All advice in this article is of a general nature and your own personal circumstances may be different so make sure to seek professional advice before making decisions regarding your superannuation.

Related links

• Compare superannuation 
• Personal super funds

Important Information

Advice contained in this article is general in nature and not specific to your particular circumstances.  Before making an investment decision you should consider your own financial situation and the relevant Product Disclosure Statement/s.  We also recommend you seek advice about your own particular circumstances from a licensed financial adviser.  Further information on superannuation can be found at: https://www.moneysmart.gov.au/superannuation-and-retirement. Retirement forecasts are estimates only and subject to a number of assumptions that may change. A change in these assumptions will change the outcome.

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